Two US senators are urging Federal Reserve Chairman Jerome Powell to cut interest rates to avoid an economic recession.
In a new letter sent directly to Powell, Democrats Elizabeth Warren (D-Massachusetts) and Jacky Rosen (D-Nevada) argue that persistently high interest rates are slowing the economy and driving up the costs of housing and insurance, which the senators say are the “most important drivers” of the current inflation rate.
“Shelter inflation is responsible for a significant portion of the Consumer Price Index (CPI), and high interest rates result in higher, not lower, shelter costs. High interest rates have driven up rents, mortgages and construction costs, limiting the supply of housing and keeping prices high.
[Mark Zandi, chief economist of Moody’s Analytics]emphasized that if ‘single-family rental prices are removed from the Fed’s preferred price measure, inflation will already be below 2%.’”
Warren and Rosen also argue that car insurance costs have risen due to a shortage of mechanics, more serious and frequent car accidents, damage from climate change and more complex cars that are more expensive to repair.
“None of these factors are mitigated by high interest rates. In fact, the Fed’s rapid rate hike in 2022 may have had the opposite of the desired effect, prompting insurers to increase premiums.”
The Fed is expected to release its next statement on the Federal Funds Rate at the Federal Open Market Committee (FOMC) meeting on June 12. Analysts expect the central bank to keep interest rates unchanged.
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